Posted on 06/05/2023 9:49:49 AM PDT by SeekAndFind
Here's a Tweet that caught my eye regarding the "fundamental problem" in China. What about the US and EU?
"The fundamental problem — that Chinese people paid excessive prices for real estate because they thought the price would always go up — remains. And that means that someone will eventually have to take the losses."@Noahpinionhttps://t.co/I7m7fd3eWc — Michael Pettis (@michaelxpettis) June 3, 2023
"The fundamental problem — that Chinese people paid excessive prices for real estate because they thought the price would always go up — remains. And that means that someone will eventually have to take the losses."
Noah accurately comments that "someone will eventually have to take the losses."
In China, the government refuses to support consumption. Instead, it repeatedly turns to real estate and exports for growth, pilling on losses upon losses in State Owned Enterprises (SOEs).
In the US we have commercial real estate problems, overprices houses, and overpriced equities.
Someone will have to take the losses, notably pension plans that are massively underfunded despite three consecutive stock market bubbles.
Hardly. The fundamental problem everywhere is an unsound currency system that promotes bubbles as a means of growth.
The fundamental problem propagates differently in different place.
China has massive property bubbles. The US has untenable deficit spending issues and many bubbles, yet, still tries to be the world's policeman, while weaponizing the US dollar on top of it all.
In the EU, Germany and Northern Europe largely dictate what happens in a core vs periphery issue.
The EU has an additional problem: The Maastricht treaty, the EMU, and EU rules make it nearly impossible to fix anything without unanimous consent of all the nations involved.
Central banks everywhere are guilty of promoting bubbles and busts of increasing amplitude.
The fundamental problem is best viewed as a combination of unsound currencies, unsound central bank policies, and unsound fiscal policies that manifest in different ways in different countries.
But every country has the same thing in common: "someone will eventually have to take the losses."
That we are in such a quagmire over that unavoidable truth is not the problem. It's a symptom of the primary underlying problem, unsound currencies, everywhere.
A fundamental strength of capitalism is ability to succeed and fail.
We do not have capitalism when central banks and governments act to prevent losses. Nonetheless, the losses and distortions continue to mount or are papered over at taxpayer expense.
Japanification of the global economy has largely been the result, more so in Japan and the EU, than the US. Japanification of China is happening now.
A currency crisis of some sort awaits, as every country, but in different ways, is hell bent on preventing someone from taking the losses.
I think that the crisis starts outside the US. Likely places include Japan, China, or the EU, but it could start anywhere.
One thing I am certain about is dollar weaponization by the Fed will speed up the timeline.
For discussion, please see Dollar Weaponization Expands - FDIC Message to Foreign Depositors Is Don't Trust the US
Also see Central Banks Are Buying Gold at Record Pace, What Does That Mean for Inflation?
Just don't expect immediate results. We have been on an unsustainable path for decades.
Don't underestimate the willingness or ability of central banks to kick the can down the road. No one knows when, or what the trigger will be.
Do expect more global Japanification.
* * *
Uh....They have all TURNED AWAY FROM GOD!!!!
My guess was going to be... “We have always been at war with East Asia.”
And here is how it was done: https://youtu.be/yErKTVdETpw
I can identify “someone” in the US. The losses will be eaten by the average working stiff who will lose a lot of his/her pension and our children and grandchildren who will toil the rest of their lives to pay for this madness.
The executives, politicians, oligarchs, bureaucrats, and K Street types will weather the storm pretty well because we now live in a nation that privatizes profits (and bonuses) and publicizes losses.
The author is right though.... someone will eat this brown smelly sandwich and its not going to be the people who made it. You can be certain of that.
How do I know this? Nobody, and I mean nobody, was held responsible for the 2008 housing crisis and the “too big to fail banks” that created the mess were able to get free money from our children for over a decade. They made out like bandits. The executives at Freddie and Fannie walked away with over 100 million in bonuses even as they lied to congress. The bureaucrats and rating companies that kept rating all the crap as grade A were never held accountable. The politicians that pushed home ownership were never held accountable.
The best example of where we are headed (again)
https://www.youtube.com/watch?v=vgqG3ITMv1Q
The Big Short is one of the best pieces of “truth” ever put out by Hollywood. Period.
The bigger the government, the bigger the problem.
Not necessarily. They can use inflation, and everyone takes the losses.
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